The FCC Has To Remind ISPs Not To Spend Taxpayer Subsidies On Booze, Trips To Disney World

from the like-my-subsidized-Rolex? dept

For many years now, the General Accounting Office has warned the FCC that if it’s going to throw billions of dollars at giant ISPs, it might just want to track how that money is spent. GAO reports like this one from 2009 (pdf) noted that not only has the FCC historically done a dismal job at tracking subsidy spending, most government broadband policies have been based on flawed, incomplete or downright hallucinated data (just check out our $300 million US broadband map). In other words, for the better part of fifteen years our government not only didn’t really know where broadband funding was needed, it couldn’t be bothered to track if it was actually going there.

Not too surprisingly, as a result, we’ve seen years of fraud, waste and abuse in the FCC’s Universal Service Fund (USF) and e-rate programs intended for rural and school telecom improvements. To be clear, the USF has certainly helped thousands of communities; but were someone to conduct an audit of state and federal broadband subsidies since the late nineties (which will never happen) they’d very likely find that misdirected funds could have delivered a fiber connection to every U.S. home and school — several times over.

As the FCC looks to expand the USF to cover additional rural broadband deployment, it’s now warning ISPs that somebody’s at least pretending to watch where billions of dollars are going. An FCC notice to recipients of FCC funds (pdf) this month informs companies that subsidies intended for broadband…should actually be used for broadband:

“The Commission reminds all eligible telecommunications carriers (ETCs) that receive support from the Universal Service Fund?s high-cost mechanisms of their obligations to use such support only for its intended purposes of maintaining and extending communications service to rural, high-cost areas of the nation.”

The FCC proceeds to remind ISPs that this money should not be used for booze, gifts for co-workers, entertainment, political donations or cafeteria art work. Amusingly, the FCC includes a few examples of ISPs that have decided to use the USF as their own personal little slush fund. One ISP, by the name of Sandwich Isles Communications, collected $242,489,940 from the USF over a decade, purportedly to provide telecom service to just 3,659 rural customers. Instead, company owner Albert Hee used taxpayer money for everything from massages to trips to Disney World:

“For example, the companies apparently paid $96,000 so that Hee could receive two-hour massages twice a week; $119,909 for personal expenses, including family trips to Disney World, Tahiti, France, and Switzerland and a four-day family vacation at the Mauna Lani resort; $736,900 for college tuition and housing expenses for Hee?s three children; $1,300,000 for a home in Santa Clara, California for his children?s use as college housing; and $1,676,685 in wages and fringe benefits for his wife and three children.”

Note the FCC never bothered to notice. Lee was ultimately convicted in Hawaii of filing bogus tax returns, and the FCC stopped throwing money at the company only just a few months ago. So while it’s great the FCC seems to finally be paying closer attention to broadband subsidy fraud (it launched a new strike force last year tasked with rooting out abuse), most of the companies abusing the USF over the last twenty years have had notably more clever accountants, lawyers and lobbyists than Lee (read: AT&T and Verizon). Given these more formidable adversaries you’d be hard pressed in finding anybody interested in conducting an audit to see where those billions of dollars actually went. Still, moving forward, it’s a good reminder for everybody that taxpayer subsidies should not be used for Jagermeister shots and happy endings.

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Comments on “The FCC Has To Remind ISPs Not To Spend Taxpayer Subsidies On Booze, Trips To Disney World”

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18 Comments
That One Guy (profile) says:

Empty threats

So long as those involved aren’t penalized, so long as they receive at most a slap on the wrist, stuff like this will keep happening, no matter how much the FCC blusters.

Want companies to think twice before pulling stunts like this? Hit them, hard, where it counts: Their bank accounts. Use taxpayer dollars for personal expenses? Fraud charges and forced to pay back 150% of what was ‘misplaced’.

Until there’s some real penalties for using taxpayer money on personal stuff, whether trips, property or other, it’s not will it happen, merely how often.

Anonymous Coward says:

Money is fungible. If you say you can’t use this money for booze, but you can use that money (your own money) for booze, that means that you’re still paying for that booze. If the government gives you $1 million for core upgrades, you now have an extra million dollars of your own money that don’t need to be used for those upgrades. What are you going to do with that money? Because money is fungible, one dollar is exactly equivalent to another.

How about we give money to those companies that NEED it, rather than giving money to companies to already have plenty of it?

Anonymous Coward says:

Re: Re:

You sir, are the only one who gets it. I can’t believe how many people think that restricting money to a single purpose actually means that money doesn’t get spent on other things.

Look at the lottery money. Once the majority of the states passed it on the promise of more money for schools; they immediately took other money from the schools so the schools were no better off. It is a shell game.

If money is going to be spent, measurable results better take place or the money should be taken back and/or criminal charges pressed.

annonymouse (profile) says:

it's only money

Really? Fines will just be put under operating expenses.

Just stop corporations from being persons and stick the top 6 execs as listed in the annual reports, in a federal prison in Antarctica. The Russians would be tickled pink if it was done as a cooperative facility for drug lords and corpratists. Would not have to worry about helicopters or tunnels either.

TasMot (profile) says:

How About Real Accountability

First: Define where there is a need
Second: Obtain evidence that there is actually a lack
Third: Allow an ISP to build out the network to alleviate the need
Fourth: Verify that the network that WAS missing is NOW in place
Finally: Then, pay a portion of the cost that is above the normal build out cost. After all, the ISP is going to be charging for this build out for years to come.

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